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New AFPS & Compensation Schemes

KEY FEATURES OF THE NEW ARMED FORCES PENSION SCHEME (AFPS)

The key features of the new AFPS are:

  • A scheme providing defined benefits based on actual individual pensionable earnings (best of last three tax years with the earlier years brought up to current value by application of Retail Price Index increases rather than, as now, on a "representative" rate of pay for each rank based on final year’s pay rates).
  • Common treatment for Officers and Other Ranks - unlike the current AFPS. Pensions will start to accrue from first day of service. Officers and Other Ranks will serve the same number of years (35) for a full career pension at age 55 with an even accrual rate (1/70ths per year) (currently there is an accelerated rate of accrual for Officers in particular up to the early Immediate Pension (IP) point).
  • A new system of Early Departure Payments (EDPs) for those serving 18 yrs (and having reached age 40), to replace the current IP, with a similar benefits structure, but some reduction in cost to help fund improvements elsewhere (notably to dependant’s benefits) and the cost of pensioners living longer. EDPs will be payable until the preserved pension comes into payment at age 65.
  • Value of pension. After 35 years, the pension income would be worth half of pensionable pay, with scope to accrue further pension for those serving longer. The lump sum will accrue in parallel with the pension and will be three times pension.
  • Improved dependants’ benefits. Widow's pensions will be increased by 25% compared with the current AFPS and will be awarded for life (already the case for attributable widows). Children’s pensions will be awarded to children of post-retirement marriages.
  • Provision will be made for registered unmarried partners (including same sex).
  • Death-in-Service benefits will be increased to 4 times pensionable pay (from a maximum of 1½ times at present).
  • New three-tier non-attributable ill-health arrangements, with minimum guarantees for the more severely disabled. For the most severely disabled, this means a minimum pension guarantee of 20 years pensionable service on exit and, for the moderately disabled, an enhancement of one third of future service to age 55. Those with minor disablement will be awarded a gratuity.
  • Preserved Pensions. In recognition of their special fitness requirements, it has been agreed that the Armed Services, Police and Fire Services will retain a full career pension age of 55. (This does not affect actual compulsory retirement ages which will continue to be tied to Service career structures.) However, to reflect the Government’s plans to raise the normal public service pension age, preserved pension will be paid from age 65 (rather than age 60).
  • The scheme will remain unfunded, in line with the majority of public service schemes, and non-contributory although it is expected that the pension value will continue to be taken into account (currently through a 7% abatement of comparator pay) when the Armed Forces Pay Review Body set Service pay levels.
  • The proposals are designed to be cost-neutral. It was not considered that, in general, pensions were having a negative impact on recruitment and retention in the Armed Forces, and therefore there was seen to be no justification for spending more on the scheme. The cost of the new scheme on recently updated mortality assumptions is the same as the cost of the current scheme on old mortality assumptions.

Last Updated: 20 Apr 04